After dumping their Tokyo stock holdings for four of the past five months, foreigners are on track for their biggest annual exodus since 1987. Back then, they were fleeing bubbly valuations and the Black Monday crash. This time, they’re fed up with Shinzo Abe’s ineffectual economic policies and the surging yen.

“In the late 1980s, international investors were disappointed and realized it wasn’t sustainable,” said Toru Ibayashi, the Tokyo-based head of Japanese equity investments at UBS Group AG’s wealth management unit, which oversees $2 trillion worldwide. “The latest selling tells us how seriously and deeply disappointed they are in Abenomics.”

The $59 billion outflow, bigger than in any of the 33 markets tracked by Bloomberg, helps explain why unprecedented exchange-traded fund purchases by the Bank of Japan have failed to prevent a 12 percent slide in Tokyo’s Topix index this year. The gauge was little changed in afternoon trading on Wednesday. With overseas funds pulling out faster than the BOJ can buy, some of the world’s biggest investors say there’s little hope for a market revival anytime soon.

Yen Strength

“Japan is now in a difficult position when it comes to foreign investment,” said Yoshinori Shigemi, a global market strategist at JPMorgan Asset Management, which oversees about $1.6 trillion.

High-up on Shigemi’s list of concerns is the yen, which has advanced 16 percent against the dollar for the biggest gain among major Asian currencies this year. That’s bad news for Japan’s export-sensitive Topix, where per-share earnings have dropped about 18 percent since September 2015, according to data compiled by Bloomberg.

Currency strength is also undermining the effectiveness of Abenomics, a key driver of foreign inflows in 2013. The government’s prescription of massive monetary stimulus, increased fiscal spending and structural reform has so far failed to spur lasting growth or get the country anywhere near its 2 percent inflation target. Consumer prices fell for the fifth straight month in August, while households cut spending by the most since March.

For some foreign investors, BOJ stimulus is making the stock market less attractive. The central bank’s adoption of negative interest rates has weighed on bank profits, while the monetary authority’s $58 billion-a-year ETF program has fueled concern that the holdings will distort valuations and make some stocks difficult to trade. Mark Mobius, the executive chairman of Templeton Emerging Markets Group, called the BOJ’s methods “insane” in an interview last month.

At Pictet Asset Management, Japan skeptics have reduced holdings despite attempts by Hiroshi Matsumoto, the firm’s head of Japan investment, to convince his colleagues that the market is a long-term buy. The Topix trades at 13 times projected earnings for the next 12 months, versus the 10-year average of 15, data compiled by Bloomberg show.

“Some of my colleagues don’t believe the time is right,” said Matsumoto, whose firm oversees about $150 billion worldwide. “People are not confident enough. There’s an argument to reduce Japanese equities and put the money in other asset classes, like emerging equities in Asia.”

Bolder Stimulus

Foreign investors should give Abenomics more time to overcome headwinds including weak global growth, according to Akira Amari, a lawmaker in Abe’s ruling Liberal Democratic Party.

“There has been a delay,” Amari, a former economy minister, said in an interview at Japan’s parliament in Tokyo on Tuesday. “But Abenomics isn’t wrong as a plan.”

While overseas sellers in 1987 proved right in the end, local investors kept the bubble going for another two years before it finally popped. With BOJ Governor Haruhiko Kuroda pledging to boost asset purchases if needed to revive growth, the risk for bears this time around is that further central bank stimulus eventually sparks a rally.

“The foreign selling is very clearly overdone,” said Mikio Kumada, a Hong Kong-based executive director at LGT Capital Partners, which oversees about $50 billion and stopped cutting its Japanese stock holdings this year. “The BOJ will make a move. The yen should weaken again and the equity markets will rise.”

For UBS’s Ibayashi, a sustainable rally is only likely once the government makes headway on key structural reforms. Abe has yet to enact one of his most-anticipated policy promises, an overhaul of the labor market that many analysts say is essential for improving the profitability of Japan’s corporate sector.

Foreign outflows, meanwhile, could exacerbate Japan’s reform challenges by removing a catalyst for businesses to improve their governance.

“Foreign investors are a strong driver of corporate reform,” Ibayashi said. “But they’re disappointed, giving up and leaving Japan. Is that a good thing? I don’t think so.”